The European Commission has adopted two revised horizontal block exemption regulations (HBERs), on (i) research & development (R&D) agreements, and (ii) specialisation agreements. They entered into force on 1 July 2023. The Commission has also published revised horizontal cooperation guidelines (HGLs). The HGLs shed light on the application of the HBERs and on the self-assessment of R&D and specialisation agreements that are not covered by the HBERs. The HGLs also provide substantial guidance on the self-assessment of other key types of cooperation agreements between competitors, including a chapter devoted to sustainability agreements.
The updated rulebook is intended to facilitate economically desirable cooperation, for example, agreements that contribute to the 'twin' digital and green transitions presently underway in the EU. However, the competitive assessment of sustainability agreements remains anchored in the consumer welfare standard as "out-of-market" sustainability benefits can be taken into account only if the affected consumer group in the relevant market substantially overlaps with the group of beneficiaries outside that market.
The horizontal context
EU treaty law and national competition laws of member states contain prohibitions on anti-competitive agreements. Anti-competitive agreements can either be horizontal agreements (at the same level of the supply chain) or vertical agreements (at different levels of the supply chain). Compared to vertical agreements, horizontal agreements are subject to higher enforcement risks as these are concluded between actual or potential competitors and can serve as disguised cartels. That said, horizontal agreements may also lead to consumer benefits, for example, by improving product quality, speeding up innovation or addressing shortages/supply chain disruptions. Against this backdrop, the HBERs operate as "safe harbours" by declaring that if agreements fulfil specific conditions, the prohibition on anti-competitive agreements does not apply. However, unlike the conceptually similar block exemption regulation that applies to vertical agreements in general (see our previous article), the two revised HBERs are limited to R&D and specialisation agreements. Nevertheless, R&D and specialisation agreements falling outside the scope of the HBERs as well as other forms of cooperation between competitors can escape the prohibition on anti-competitive agreements altogether or benefit from an assessment against the criteria for an exemption. The HGLs explain how companies must assess compliance with the prohibition on anti-competitive agreements, and how conditions for exemption from that prohibition may be fulfilled.
The evaluation and consultation process underlying the adoption of the revised rules highlighted that the outgoing rules are not in sync with the economic and societal developments of the last decade, particularly digitalisation and the pursuit of sustainability objectives. Accordingly, the revised HGLs provide up-to-date guidance on information exchange between competitors and on agreements concerning R&D, production, purchasing, commercialisation, standardisation, standard terms and sustainability. In addition, the revised R&D and revised specialisation HBERs are meant to be clearer and easier to apply. We highlight the key changes in the rules.
R&D cooperation essentially consists of an agreement between companies to jointly improve existing products and technologies or to develop products and technologies that create an entirely new demand. R&D agreements may equally be 'paid-for' cooperation where one party finances R&D carried out by its counterparty. Regardless of the form, R&D agreements between companies having a combined market share of 25% or less are block exempted by the R&D HBER, if certain other conditions are met. As market share is fundamental to the block exemption applying, it is helpful that the updated R&D HBER provides a flexible approach to calculating market share: if sales data for the last calendar year does not represent the parties' true market position, data for the last three calendar years may instead be relied on. The application of the "grace period" that allows an agreement to continue being block-exempted for a certain duration despite the market share threshold being exceeded, is also made uniform for different kinds of R&D cooperation and is now set at two years for all cases.
Importance will be given to innovation competition where it is not possible to calculate market shares. This is the case for example, in relation to the development of products creating new demand or in case of innovation efforts that are at an early stage. The new rules further clarify that parties to an R&D agreement that are not competitors in existing product or technological markets may still be considered competitors in innovation. If an R&D agreement substantially restricts innovation competition, the updated R&D HBER explicitly refers to the Commission or a national competition authority having the option to withdraw the benefit of block exemption in individual cases.
Specialisation agreements include unilateral and reciprocal specialisation agreements, which are essentially types of horizontal subcontracting agreements, and joint production agreements. Unilateral specialisation involves a party ceasing production of certain products and purchasing those products from another party/other parties to the agreement. Reciprocal specialisation involves parties agreeing, on a reciprocal basis, to cease production of certain, but different, products and to purchase those products from another party/other parties to the agreement. Joint production, in contrast, is an agreement to produce certain products jointly.
Specialisation agreements between companies with a combined market share of 20% or less are block exempted by the specialisation HBER, if certain other conditions are met. Identical to the changes outlined above in connection with the R&D HBER, the revised specialisation HBER provides the same flexible approach to calculating market shares and the same simplified and uniform application of the grace period. The revised specialisation HBER explicitly extends the 20% market share threshold to relevant downstream markets if the specialisation agreement concerns an intermediatory product that is used as input for products sold in downstream markets. It is now also possible for a unilateral specialisation agreement to include more than two parties since, due to size and resource limitations, effective specialisation may at times require several parties to cooperate. The HGLs, on their part, clarify that they apply to all forms of horizontal joint production agreements and all horizontal subcontracting agreements.
Mobile telecommunications infrastructure-sharing agreements
As mobile network operators frequently combine their resources to reduce the costs of providing mobile telecommunication services, the chapter on production agreements in the HGLs includes a new section on the competitive assessment of mobile telecommunications infrastructure-sharing agreements. This is also a specific example of a production agreement that concerns services. A mobile infrastructure-sharing agreement will prima facie be considered unlikely to restrict competition if certain minimum requirements are met. These include parties retaining technical and commercial decision-making independence and not exchanging commercially sensitive information irrelevant to the proper working of the agreement. Agreements that are limited to the sharing of basic site infrastructure (site sharing) such as masts, antennas or power supplies, are less likely to be anti-competitive than more extensive cooperation such as sharing radio access network equipment at sites (RAN sharing) or sharing frequency bands (spectrum sharing).
These agreements concern the joint purchase of products. Joint purchasing is common as companies often prefer pooling together their purchasing activities to collectively command some buying power or, at times, even to address supply chain disruptions. The revised HGLs clarify that joint purchasing not only covers scenarios where purchasers buy products together but also situations where they limit their cooperation to joint negotiations on purchase prices, other purchase conditions, etc. Based on the prices and terms negotiated jointly, each purchaser can then individually purchase from the supplier. The HGLs also address the assessment of threats by a joint purchasing arrangement to abandon negotiations or temporarily suspend purchasing. Deploying such negotiation tactics will not always be viewed as anti-competitive provided they are limited to the product that is being negotiated and are temporary, ceasing when negotiations are resumed or an agreement with the supplier is concluded. Potential anti-competitive effects of such negotiation threats are to be assessed in the context of the overall effects of the joint purchasing arrangement as well as the market position of the members implementing the threats. Stricter national laws that prohibit unfair practices or unilateral conduct may still apply to the use of negotiation-related threats.
Buyer cartels are high on the radar of the competition authorities and we have seen a rise in actions by authorities, such as enforcement against Dutch egg product companies, styrene purchasers, scrap car battery purchasers, ethylene producers, French and Belgian supermarkets, etc. Buyer cartels do not entail joint purchasing or joint negotiations with the supplier. In other words, a buyer cartel consists of individual negotiations with the supplier while the cartel members secretly coordinate those negotiations. The expert report on purchasing agreements concludes that buyer cartels "have never involved joint purchasing". Accordingly, the HGLs include expanded guidance on the important distinction between illegal buyer cartels and legitimate joint purchasing. Joint purchasing will be less likely to amount to a buyer cartel if suppliers are made aware that joint negotiations are conducted, or the joint purchasing arrangement purchases, on the parties' behalf. It is also advisable to define upfront the form, scope and functioning of the joint purchasing arrangement in a written agreement.
Commercialisation agreements concern competitors cooperating in the selling, distribution or promotion of their products. These may extend to the determination of all commercial aspects related to sales, including price or may instead be limited to a specific commercialisation function like after-sales services or advertising. The HGLs provide expanded guidance on the risk of output limitations that may arise from commercialisation agreements. In principle, parties must independently decide to reduce or increase output. Risks of output limitations are limited in the case of non-exclusive commercialisation agreements that allow parties to individually serve any additional demand. The chapter on commercialisation agreements also includes a new section on the distinction between a legitimate bidding consortium and bid rigging.
Bid rigging is the manipulation of a tender procedure for the award of a contract and is a serious restriction of competition. Bid rigging is considered a form of cartel conduct that is premised on an agreement between tender participants to secretly coordinate their participation in a tender procedure.
In contrast, a bidding consortium refers to a situation where two or more parties formally cooperate to submit a joint bid in circumstances where that cooperation leads (on balance) to pro-competitive effects. Such a consortium will not be caught by the prohibition on anti-competitive agreements if it enables parties to collectively participate in projects that they would realistically otherwise not be able to undertake individually. This is the case, for example, where parties cannot undertake the project individually due to the size/complexity of the project or if parties provide different complementary services that are required for a project. Where the parties are capable of participating individually, their bidding consortium may still qualify for an exemption if it allows the parties to submit an offer that is more competitive in terms of price and quality than the offers that they could have submitted individually. However, the benefits stemming from the bidding consortium should not be confined to the parties and must be passed on to consumers.
Standardisation agreements concern the establishment of technical or quality requirements for current or future products, production processes, etc. The revised HGLs provide that restricting the participation of certain companies in the development of a standard may not always be anti-competitive. These include circumstances where there is competition between multiple standards or where the restrictions on participation last for a limited period and are meant to accelerate the standard-setting process.
To ensure the informed choice of technology use in standards and effective access, participants in the development of a standard can be required to make specific disclosures of the intellectual property rights (IPR) essential for the implementation of the standard, including patents or patent application numbers. The possibility of a participant merely declaring that it is likely to have IPR claims over a particular technology, commonly known as "blanket disclosures", must be limited to cases where specific information is unavailable. In addition, standardisation agreements allowing ex-ante disclosures by participating IPR holders of a maximum accumulated royalty rate to be charged, will generally not restrict competition. This will help parties involved in the selection of the standard to be informed about the likely cost of the relevant IPR.
Standard terms and conditions of sale or purchase are used by competitors in some industries such as banking and insurance. The HGLs are relevant to standard terms and conditions when competitors either sell to customers or purchase from suppliers, but they do not deal with the conditions of sale or purchase between competitors. Agreements on the use of standard contract terms are now covered in a new chapter, separate from the one on standardisation agreements. Other than this, little has changed in the revised HGLs in connection with standard terms.
To increase legal certainty and facilitate sound self-assessment, the chapter on information exchange has been almost completely redrafted and has a new structure. There is guidance on the notion of "commercially sensitive information" and on methods that may reduce the commercially sensitive nature of particular information, such as information aggregation. Additional guidance is provided on the various forms of information exchanges, including guidance on new developments like benchmarking.
Additional guidance is furthermore provided on key concepts relevant to the competitive assessment of information exchange, such as guidance on "genuinely public information", "age of information", "unilateral disclosures" and indirect information exchanges (hub-and-spoke scenarios and third-party facilitators), etc. Guidance is also given on precautions that companies can take to avoid infringements. These include both measures that limit or control information or data use, such as clean teams or the involvement of independent trustees, and measures that companies can rely on to distance themselves from information exchanges. There is also more guidance on exchanges necessitated by EU regulatory initiatives and exchanges in connection with different types of horizontal cooperation agreements.
Bearing in mind information exchanges in the context of digitalisation, the HGL addresses different types of data sharing. This is helpful as market developments such as the use of data analytics and machine-learning techniques have increased the importance of data sharing. Data sharing is also a key element in the European strategy for data. The HGLs notably recognise that data sharing may have positive effects, for example by directly benefitting consumers through reducing their search costs and improving choice.
Companies are increasingly looking to support the EU's green ambition. As competitors are considering joining forces in pursuit of sustainability goals, a chapter in the revised HGLs is devoted to the competition-law assessment of sustainability agreements. The HGLs reiterate that sustainability agreements are not a distinct category of horizontal cooperation agreements. If cooperation agreements between competitors are one of the types covered elsewhere in the HGLs, their assessment will be based on the relevant chapter of the HGLs together with the guidance on sustainability agreements. For example, an agreement to purchase exclusively from suppliers that respect certain sustainability standards is evaluated according to the chapter on purchasing agreements while taking into consideration the chapter on sustainability agreements. If there is a discrepancy between chapters, the HGLs allow the parties to rely on the more favourable guidance.
Compared to the chapter on sustainability agreements in the draft version (see our previous article), there are limited significant changes in the final version of the HGLs. That said, the conditions for making use of the soft-safe harbour for sustainability standardisation agreements have been tweaked. The sixth condition, requiring that there must be no significant price increase or lessening of product choice, remains. However, as an alternative, it will suffice if the combined market share of the participating companies does not exceed 20% on any relevant market affected by the standard. The previous seventh condition – to establish a monitoring system to check compliance with the standard – has been moved out of the conditions of the soft-safe harbour but is still mentioned as a factor that makes it more likely that the sustainability standardisation agreement will attain its sustainability objective. The HGLs also clarify that agreements limiting the participants' output of the products concerned cannot qualify as sustainability standardisation agreements and thus do not benefit from the soft safe harbour.
It is disappointing that the Commission remains unmoved by feedback that out-of-market benefits of sustainability agreements (particularly those aiming to reduce greenhouse gases) should be treated largely at par with benefits accruing within the relevant market. The HGLs provide that benefits of a sustainability agreement that accrue outside the relevant market can offset possible competitive harm only if (i) the consumers affected by the restriction of competition within the relevant market and the beneficiaries outside that market are substantially the same, and (ii) the benefits are significant enough to compensate those affected consumers.
In its draft guidelines, the Dutch Authority for Consumers and Markets (ACM) is more open to considering out-of-market benefits and only requires that for considering benefits accruing outside the Netherlands, the parties must show how the benefits affect users in the Netherlands by substantiating them on a case-by-case basis. The ACM has already assessed and supported several pro-sustainability agreements (see our previous article) but has not finalised its guidelines as it prefers a harmonised EU approach. Although it now plans to bring its draft guidelines on sustainability agreements in line with the Commission's HGLs, the ACM has indicated that it intends to resolve inconsistencies between its draft guidelines and the HGLs by relying on its case prioritisation powers. In other words, the ACM may, on a case-by-case basis, not enforce against agreements that deliver benefits to wider society but do not strictly fully compensate every affected consumer in the relevant market. Nevertheless, as many sustainability initiatives in the Netherlands are likely to have an effect on trade between EU member states, the risk arises that the Commission could pursue such agreements even if the ACM chooses not to.
To properly factor in all the feedback received in response to the public consultation on the draft HBERs, the Commission had exceptionally delayed finalising the revised rules by six months. The two revised HBERs finally entered into force on 1 July 2023 and apply to new R&D and specialisation agreements as of that date, although companies have 24 months to ensure that their existing agreements comply. The revised HBERs will apply for a period of 12 years.
The revised HGLs have yet to enter into force – this will happen after their publication in the EU official journal, which is expected shortly.